Now I happen to love The Consumerist.Â I think itâ€™s a very witty and snarky website that points out the many nutty injustices consumers sometimes face, and they often intervene in some really insane cases.Â So I really want to give Morran the benefit of the doubt here.

The problem is that Morranâ€™s arguments donâ€™t seem to make much sense, and he cites some sources that have questionable motives.Â Â His criticism of the Zywicki/Sarvis article doesnâ€™t hold water, and Iâ€™ll tell you why.

Zywicki and Sarvis lay out very specific arguments in their article.Â Morran does not actually refute any of them.Â He just quotes the Center for Responsible Lending and figures that addresses the issue, case closed.

Morran says, â€œthere are people â€” well-educated people at that â€” who stick with the argument that payday loans are a good thing.â€Â These well-educated people have presented facts.Â They explain in great detail how and why people use consumer credit.Â They explain how people make choices.Â They demonstrate the unintended consequences of regulating consumer credit.

Yet Morran, who is also a well-educated person, responds with statements that donâ€™t make any logical sense.Â Hereâ€™s one example:Â â€œThe authors also defend auto-title loans, in which the borrower uses their vehicle as collateral for high-interest, short-term loans. They claim this allows consumers without bank accounts and credit histories to obtain a loan they wouldnâ€™t normally be able to. Thing is, auto-title loans are outlawed in more states than payday loans.â€

Huh?Â The point is auto-title loans are available in some states, and are therefore a source of credit that consumers choose.Â He also seems to state a logical fallacy: that if something like payday or auto-title loans are not permitted in a certain state, it therefore proves they are â€œbadâ€.Â This ignores political realities of how state legislators, lobbyists, activists, and the media operate.Â It also suggests that, since New York State bans the sale of alcohol on Sundays until Noon, it must be â€œbadâ€ to drink alcohol on Sunday mornings in every state.

Worst of all, Morran seems to just believe what this Center for Responsible Lending tells him.Â Why does he believe them?Â Because they have a nice name?Â Iâ€™m starting my own investigation into exactly who and what this Center for Responsible Lending is, but in spending time at their website, they make the same arguments against payday lending that Iâ€™ve addressed time and again here on this blog.Â In fact, itâ€™s kind of amusing that Morran makes the claim that, â€œThe articleâ€™s assertions are not that different from the arguments made during the height of the housing bubble by lenders who pushed borrowers into subprime mortgages â€” â€œThese loans not ideal but they get people into houses who otherwise could not have gotten standard loans.â€â€¦just like those adjustable-rate mortgagesâ€ when one source says that the Center for Responsible Lending was founded by the same people who came up with these adjustable-rate mortgages in the first place.

Morran also ignores the question that nobody ever seems to want to answer.Â If this choice is so very very very bad for consumers, why on earth do they keep using it?Â I mean, according to the Pew Charitable Trustâ€™s Survery on payday loans from last year, weâ€™re talking about 12 million people that not only choose payday loansâ€¦but they choose them over and over again!

So you have to figure that these people are very very very stupid to be using something that Morran and other people say is really really really bad orâ€¦

These people feel it is the best choice among the ones available.

Iâ€™m going with the latter.Â Because I think people know exactly what they are doing, and that people like Morran think they know better because they see 390% APR, and instantly conclude it must be bad, without ever having actually needed a short-term cash infusion.Â If he did, heâ€™d know that these folks donâ€™t care about APR, they care about the flat fee.

So whatâ€™s going on here with Morran? Â I suspect that, as a consumer advocate, he is naturally inclined to oppose things that appear, even on the surface, to be anti-consumer.Â Okay, that makes sense.Â As I said, I love the Consumerist.Â Good for him.

But, and this is a big â€œbutâ€, isnâ€™t it also incumbent upon this consumer protector to thoroughly investigate every product?Â That he should examine both sides of the issue?Â I mean, why isnâ€™t there anyone from the payday loan industry quoted in his article?

It is.Â Â But instead, I suspect that Morran seeks out confirmation bias on his opinion regarding to payday loans by only talking to entities that share his point of view.Â Once he has that confirmation, he feels the other side could not possibly have any merit to it.Â I suspect he has never taken out a payday loan, and I also bet he has never even visited a payday loan store.Â Iâ€™m going to guess that, as a result, he has never spoken to a payday loan customer.Â Iâ€™m also going to guess that he has never spoken to a payday lender â€“ a real, live payday lender!

Iâ€™m going to guess that he is viewing the world of consumer credit from an abstract, removed perspective, and totally lacks in real-world experience.Â Â It shows.Â Â He compares payday loan costs to credit card advance costs and regular loan costs (like for cars and homes).Â Yet payday loans do not even operate in the same universe as these options.Â Itâ€™s a short term loan!Â Not a 30 year loan.Â Not a multi-month loan.Â Naturally a loan of shorter duration and smaller balance will carry a higher fee, especially when it is unsecured.

This is basic economics.

Iâ€™m also going to guess that, when I send this blog post to him, he will dismiss it because he will not want to admit that he just might be wrong.Â I will say, â€œHey, look at my blog and tell me why you think the points I make are wrongâ€, and he will say, â€œI donâ€™t have time to debate you on something very obviously evilâ€. Strange how he has plenty of time to write about something, but not defend his own arguments or address the ones made by others.

Thereâ€™s intellectual honesty and thereâ€™s intellectual bankruptcy.

Which describes what you have, Chris Morran?

[You can learn more about payday loans at the only nonpartisan blog on the web:Â Paydayloanfacts.org

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You are correct in saying that 12 million Americans choose payday loans each year. However most do not choose to use them again willingly. By this I mean because of the loan’s structure people that are suffering a financial short fall will most often suffer another financial short fall by paying off the balloon payment of the loan. The balloon payment on payday loans often takes 30-50% of a person paycheck. Loosing such a large chunk of one’s weekly income causes them to not have enough money to meet their current obligations such as groceries, gas, or utility bills. So, the consumer takes out another loan to make up for the loss of the money that went to payback the balloon payment. And the cycle begins. This cycle of repay then re- borrow typically last 5 months, though the loan is advertised for a two week loan. Additionally, the payday industry openly admits that they do not make off a loan until a person renews that loan four or five times and that less than 3% of the loans are never renewed. So the industry’s business model is to keep people coming back to re-borrow the same $300 over and over again. To be clear a borrower typically ends up taking 5 months and paying over $600 in fees from a single $300 two week loan.

Clark Reilly said,

in January 19th, 2013 at 3:37 am

Thanks for your comment, but you are parroting the same thing I’ve heard and have found no evidence of. When I say evidence, I mean actual hard numbers, and not something that comes from some organization that doesn’t like payday lenders.

For starters, when you say, “However most do not choose to use them again willingly”, you are contradicting yourself.

A choice is, by definition, something done with free will.

You say “because of the loan’s structure people that are suffering a financial short fall will most often suffer another financial short fall by paying off the balloon payment of the loan. ”

Okay. Prove it.

“This cycle of repay then re- borrow typically last 5 months, though the loan is advertised for a two week loan.”

Okay. Prove it.

“To be clear a borrower typically ends up taking 5 months and paying over $600 in fees from a single $300 two week loan.”

Okay. Prove it.

Then answer the logical problems with your thesis.

You claim $600 in fees from a a $300 loan. This sounds suspiciously like something the “Center for Responsible Lending” has said.

So i am supposed to believe that someone takes out a $300 loan, and then pay $45 or so every two weeks, and then they do that for about 28 weeks. Let’s see that comes to 13 loan renewals. So I’m supposed to believe that 12 million people every single year renew a single payday loan 13 times.

Really?

And then, after doing that, they decide, “you know what? That was such a great deal, I’m going to do it again and again and again!” Because the Pew Study says the average person takes out 8 loans a year. So not only do they take out a loan, but they take out several more, all of which are running for 5 months?

Call me a crazy man but I actually think that if someone got burned that badly by one payday loan, they’d never use it again. Which also means that there would be nobody left to use a payday loan because they all got scammed years ago.

In fact I’ve been reading the Texas OCCC reports. You know what they say? That the average number of renewals is 2.4. Let’s see, that would be about $90 or so in fees, not $600.

So don’t try to sell me on this, because neither the logic nor facts back it up.

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